The strangest may sound you look forward to recession because you realize that it could be one of your greatest market opportunities. Hello and welcome back architect Nation. I'm Enoch Sears. And I'm joined here today by my co host, Ryan Willard Ryan, how are you today? I'm very well. Excellent. This is the show where you'll discover tips, strategies and secrets for running a more profitable and impactful architecture practice that helps you do your best work more often. Now, before we jump into today's conversation, if you haven't already signed up or watched our 60 minute for motor masterclass on the smart practice method, make sure you do that by heading over to smart practice method.com. Today, we're going to be talking about something that is on the hearts and minds of architects around the world. We know it's a cyclical industry. And so the big question today that we're going to do with this, what do you do? What strategies can you take with a potential market slowdown? So we have some resources here, this is spawned by certainly some tremors in the marketplace, it's there was a call that we held a roundtable with our clients, to feel them out for what they were experiencing in the different industries. They're a part of, you know, we work with firms in the restaurant industry, the hospitality industry, custom residential, multifamily government, so a lot of different sectors. And what we're going to discuss today is some of the problems that were coming up that firms are starting to see at this stage in time, but also want to share a little bit here about a very good article that was sent to me by Fundrise. So the CEO of Fundrise. Fundrise is a it's a real estate investment trust consumer focused. So this means that anyone can invest in this real estate trust here in the United States. And what it does is it aggregates funding, and then they go out and they buy different real estate transaction, the property's they've been doing this for over over 10 years. Now, what's interesting is because of that, they really have their finger on the on the pulse of what the economy is doing, as it regards real estate, and investments and things like that. So I'm going to read a little bit here about what they had said in this article. Because if your question is, are we headed towards a recession? How close are we to a recession? When is the proverbial excrement gonna hit the fan? Then we'll take a look at that. Right. So first of all they shared they shared a quote by Jeremy Grantham on Charlie Rose. He's a renowned value investor, who famously lost half of his investor base after refusing to buy into the tech bubble the late 90s, but was ultimately proven correct when the Nasdaq fell by nearly 80%. So we've said there's an enormous pressure in the investment business to deliver good news. Trust me, good news sells better stockbrokers thrive on it, investment houses, strive on it, to go out there in a bubble and talk about overly priced markets. And unwise risks is an invitation to get fired, they simply don't want to hear it. So this is something to be aware of. If we're leaning on the mainstream media for their prognostications about what's happening in the economy, we need to take that with a grain of salt. And in the article, they go on to highlight two theories when it comes to market forces and the prediction that might have come along with it. So the first more common goes something like this. While rising interest rates have slowed things a bit, which is what's currently happening here in the US, the economy is generally healthy and more resilient than many expected and ultimately, inflation is coming down. So eventually, the Fed will begin lowering rates, and we will see either a soft landing or potentially mild slowdown, but actually, things are overall pretty good. Now, the second theory, which is their stated, opinion, goes something more like this, the effects of rising rates have yet to really start impacting things, it's not that the economy is strong, so much as it just takes a long time for these things to play out. The current period of seemingly little impact has created a false sense of confidence. And like a dam that is structurally flawed, the pressure is building, but most will not realize anything is wrong, until that final tipping point when the pressure ultimately becomes too great. And the dam breaks. And so they go on and article to correlate, and they have graphs from previous slowdowns in the recessions. And they show how historically, when interest rates begin to rise, typically there's about a almost a three year cycle to when the impacts of those rising interest rates really hit the economy. And we had a stock market bottom. So something to be aware of, we'll certainly put this article in the notes. But the question you're probably wondering is whether or not there's going to be a slowdown or not. We like to follow the stock philosophy, which is focused on the things you can't control except what you can't. In other words, the economy slows down if there's a if there's a stock market bottoms out for clients run out of money if the jobs dry up, well, that's just what's going to happen. The question is, what's within our power? What can we do? And to actually be able to answer that question, first of all, we need to be aware of what are the challenges or what are the problems that we are facing here. And so this is where Ryan will will lead us out because Ryan was the one who led that call with our clients this past Friday as a matter of fact, and so we're going to give you some from our own clients, mouse firm owners who are currently here running small practices of anywhere from zero to 20 people, what they're experiencing, in terms of the problems that they're currently seeing.
It was a very interesting year last week was actually very interesting, because a number of clients, usually who had very sturdy pipelines, some of whom, as well in the historic in the past have been very good at closing deals. And, you know, they've been trained with us, and they've, they've got a good sales patter, they were starting to notice a slowdown, or a kind of hesitancy, or at least, the need for more energy to be put into their marketing and sales. And that some clients were actually taking a lot longer to convert. You know, there was more inquiries, perhaps, but then things were not kind of being moved over the line. And that was, you know, I had about eight or nine different individual conversations with people, which is, it was enough for us to kind of get together and go, right. Okay, this is a, this is a trend that must is emerging out of our small kind of data set of clients, which led to this larger round table. And I thought it was quite interesting, because the things I'm going to share here, were actually basically, you know, people's direct experiences of what they've been seeing, and happening to them in their own businesses over the last six weeks, two months. So the first thing was, there's been a lot of projects that have been put on hold, and a lot of projects that have been indefinitely put on hold. And this is happening right across numerous sectors. So even the high net worth ultra high net worth sectors, which usually are pretty well insulated against any kind of economic troubles. There's just been a slowdown in terms of decision making. And it could be because there's, you know, rising construction costs, there's a lot of fear mongering, marketing from other professionals as well, saying, This is a terrible time to go ahead with your with your business. I think a lot of our clients, we're not necessarily agreeing with that, that advice. Sometimes when there's a sort of warm up to a recession, if you like, investors, people with high net worth, often are kind of monitoring what's happening market wise, because they want to wait for the crash. Because when that when a crash does happen, or when there was a big price dip, then that has to be you know, it's effectively everything goes on sale, those people who have got the kind of the, the reserves in the bucket. So it might mean that architectural projects actually get withheld. Some people were some clients were actually sharing that they've had quite honest and open conversations with their clients. And, you know, some of their even some of their high net worth clients were actually uncertain, certainly the ones who were employed, as opposed to ones who were business owners, very, very well, high paid employees, and, you know, tech directors and C level executives, they were actually becoming nervous about their own employment. And, you know, their new stuff was happening, and they just wanted to slow down, they're going head with a project, just in case they didn't have a job in, in six months time. Now, that that's interesting, in and of itself, and I think a little bit of a, it kind of points towards having these financial conversations with clients really, really early on. So that you as being, you know, part of your own due diligence, you know, get more comfortable talking about the finances of a client's position, what their financial cycles are, how they're planning to actually pay for the, for the costs of the design team, and the consultants, how they're planning to pay for the construction costs. These are all perfectly legitimate conversations to have. And the more the more skill and financial fluency that you have, the more useful and valuable these conversations can be for both you and for the client. But I must say, you know, we talked to a lot of architects and, you know, certainly not once they become POA clients, but certainly in the in the early stages or when we're when we're talking in the industry that lots of architects shy away from having these financial conversations with their clients and, and don't do much due diligence. So I put that in as a kind of problem as well as it is there is a lack of due diligence that happens when screening your own clients.
And one thing to add to that, Ryan is that and perhaps our listeners can identify with this when a client comes to you It's not uncommon for a client to maybe over exaggerate their financial strength or over exaggerate the desire to get this project done. Think about it you the listener who's listening to this right now, have you ever been involved in a purchase where you want it to show up as interested as possible because you want it to get the person selling to as give you as much information as possible. So a quick example of this back is must have been 15 years ago, my wife and I were looking for a sailboat. So we lived on a sailboat in Houston for approximately eight years while our young kids were growing up. And so we had gotten to the stage where we had a couple of kids and guess what the little sail but we were on a little Buccaneer 25 We needed to upgrade it. And so we went shopping for a sailboat. And I remember that a yacht broker took us out on this beautiful English boat called the westerly they have a very particular design, because they have two kills that come down, it's that part that comes down to the bottom. But they're designed, they're one of the only boats that design a sailboat this time when the tide goes out. So large tide fluctuations that happen in around the English coast allows these boats to settle flat on the ground. And it was very nice boat. But I specifically remember knowing that the boat was a little bit past our price range, but then wanting to take it out for a sale, and then just kind of posturing as if we had the financial ability to purchase this boat when it really would have been a stretch for us. And you know, looking back, it certainly wasn't very authentic of me to have done that. But it definitely helps me understand where our clients are coming from. And so you need to understand this as an architect that when you're getting that call from a developer, someone who has a project, they're going to want to pretend like the project is a green, all green lights ahead of full steam ahead. And if you if you if you buy that hook, line and sinker. In other words, if you trust that that's the case, without slowing it down without doing some proper due diligence, then you can find yourself expense in some of the other problems that we're gonna be talking about here, which is like ghosting clients sitting out a proposal and then they wait a long time to actually make a decision, then you're in the limbo of figuring out do I have this project? Do I not a lot of these things can be stopped upfront, by having a very frank conversation with your clients about their financial strength and actually positioning this conversation as a consultation, meaning that you want to help them pull this product off. So would it make sense for us to look at the impacts of an impending recession, how this might influence the business sense of proceeding with the project such as this?
Absolutely. And you know, just being able to have the ability to speak finance with your clients and not be fazed by it and not shy away from those conversations, it's massively valuable for the other person. You know, we see in the, in the US, you guys have got kind of client rep services. And in the UK, there's these kinds of concierge type services for high net worth individuals, and they're certainly specialist concierge services for property where there'll be a single point of contact for a high net worth individual, and this concierge service will work out their finance for them and help them then find a piece of land and then do negotiations around the the acquisitions, and then you know, and then it will then they'll go and assemble the kind of construction team. And the kind of you know, the engineers and the architects, and then they'll go and even offer, you know, post occupancy services from from maintenance to, you know, further renovations to interior design services to artwork curation. And it's really fascinating because it's okay, great, well, then there you go, though, here's a, here's a position that accompany who doesn't have any architectural expertise is really curating the whole, the whole project, and they're in a very powerful position with that with that person. And it really starts at that beginning point where they're bringing value by questioning and asking and actually being an ally, to the client in terms of their finance. And if when when we think about it, being an ally to our clients, and understanding what their financial problems and their cycles are, there's just a massive opportunity to better bring more value, more value and bring more in and, you know, have higher fees as a result. You know, what, again, I think a problem that we see so much in the architecture industry is that we have this conversation of, we need to better communicate our value better. But we never take the time to understand well, what does value mean for the other person? What is actually valuable right now for for that person before we start talking about us and ourselves was valuable for the for the client. So these financial conversations, you know, it opens doors, and it certainly will have your clients listen in a listen to you in a very, very different, different way. And, you know, it's part of your due diligence, really, it's part of your risk assessment. Do I want to be getting involved with these with these people? You know, many estate agents, they'll ask for proof of funds from certain clients. So if you're applying for a mortgage, just Consider the the kind of lengthy documents and application process that a mortgage broker will go through to ensure that, you know, to ascertain your, your risk to them lending you something. So, you know, we can start taking a little bit of that and applying it to these upfront conversations, these kind of grown up upfront conversations about about money. So, it alongside of that, what we've what we were hearing was, again, in the world of the ultra high net worth individuals where a lot of these guys were giving pushback to proposals, and asking for discounts and negotiating. And I think again, you know, it's interesting when people say that, that their proposal, somebody asked them to reduce their fees or ask for a discount. And sometimes, you know, an architect might take that very personally or, you know, I often hear people getting quite upset when somebody's pushback on their fees. But, again, I think we need to be a little bit open minded here and recognize that for some people, that's what they do. They negotiate, they're almost expecting you as the as the consultant to have overinflated your price. And they're expecting a back and forth bartering. And, again, being cognizant and skillful in sales and, and marketing, you should be prepared for this, you should be prepared for this, you should be prepared to have these types of conversations, and have a handful of different kinds of responses, rebuttals and strategies. And certainly, people in the you know, who were very financially fluent and successful in business, they're going to negotiate business people, so need to learn to be prepared for these kinds of conversations. Interestingly, a little side story, my partner, Yvonne, many years ago, she used to work in a one of the most beautiful hotels in London, the Corinthia, really kind of classy hotel, we went there, and actually Nick and had tea, if you remember when you came to London, very, very nice place. And she said that, it was very interesting, because the people who worked on the desk could always tell who was who was there as a sort of middle class person who was taking themselves out for a birthday treat or for or for some sort of special occasion, because they were normally they turn up the hotel, and they were right on time for their check in. And they were all dressed up in the kind of, you know, the Sunday bests. And they would never question anything. And they would, you know, they would pay the bills and all that kind of stuff. And, you know, they typically weren't there for that for that long. And she said the the super rich people would often come in, it's bit different, more difficult to tell, who was who they weren't necessarily so flashy all the time. But often, they would always ask for discounts. Always ask for discounts. Even in the hotel, they were saying, Well, we're staying here, we're staying here for two weeks, is that the best price you can do? And guess what the hotel did? gave him the discounts. Right, so the hotel didn't quite know what to do with it, but they would often they had their own sort of little, little dance move that they would do of upselling. And, you know, kind of going back and forth. And they had their own way of preparing for it. And, you know, we're gonna take, if we discount them, we're gonna you're gonna lose this sort of this sort of thing or, you know, there will be like, okay, that they were prepared for it. And they had whatever. They, they weren't salespeople necessarily on the desk. But there was a kind of a series of strategies to be able to prepare for that. And I thought that was very interesting that that, that the very, very wealthy people were just, that was a pattern for them, just to ask for, to ask for for discounts. And I think there's that famous story that was going around on the internet a little while back, where Oprah was out and about in a restaurant somewhere and she had her whole entourage of about 25 people. And she was in a big Michelin star restaurant. And the bill, the bill came and one of her kind of assistants came came to the to the kind of concierge desk and said very politely. Thank you so much for the bill. We're here with Oprah. Oprah doesn't pay. Really.
I haven't heard this before. This is no way
with with this with this particular restaurant, the kind of head chef or whoever it was actually went out himself and took the receipt to Oprah and slammed it down on the desk and said open Pay, it's okay. But what it what it indicated was that obviously, that's a behavior that, you know, happens quite a lot because they were used to going into places where they wouldn't pay. And I would, I would assert that it wasn't anything necessarily underhanded or nasty. But Oprah is very, very famous. And there's an enormous amount of value that you will get as a restaurant, having her eat at your restaurant, and she knows it. I'm not saying this as a bad thing. This is just like she knows her worth. And she knows the ability of one tweet, one good word brings in an enormous amount of value. But there's this business, they were very prepared for that and stood their ground and said, No, Oprah pays and she paid about any route, any hesitation, and then the the story was made out into the internet and maybe maybe evolved into something else that it wasn't quite, but either way, it's it's a good illustration of just for us as as vendors of professional services, and people who are allies, to our clients to be prepared with their ways of negotiating and how they're kind of what they're looking for in terms of exchange of value. So that again, so this is one thing that people have been seeing more of that there's been more of this type of negotiation. that's been happening. In the last in the last few months. We've seen, obviously, interest rates have gone up. There's more, perhaps more unemployment. I think this was from somebody in Canada that was saying that. In Canada, there's been a lot more union activity and a lot more strike action. I don't know if that's the case. Is that the case in North America as well in in the US?
I wouldn't say so. But certainly there has been some strikes happening in Hollywood that have made the news. But I haven't I haven't heard any recession based, although certainly this is something to look out for. Because certainly, when companies start making layoffs, they start making austerity adjustments, start spending less start spending less money, layoffs can start to happen, unions can start to mobilize. So this is something that could easily gridlock one of your clients, for instance, or a project that maybe gets in the in the firing range of these things, for instance. Now, this is unrelated to the economy. But certainly this could impact when your projects, I have one of our clients that had a large hotel, Project hospitality, very large project for them, they were celebrating this as a great win for us. But what ended up happening is that the roads that lead up to access this particular facility where the property is were impacted by some rainstorms that had happened here in California over the past springtime. And so the roads still haven't been prepared for this project getting pushed out indefinitely. So just to bring that up to say, certainly, there can be things like strikes, certainly there can be things like an economic slowdown, but at the same time, there can be other unforeseen circumstances like fires, acts of God, acts of nature that can impact your clients projects as well. But I haven't I haven't heard too many along the along the strike front here in the US, other than the well known Hollywood Writers Guild, which is in a whole nother conversation by AI and compensation for writers and disruptions there. But that's a whole nother podcast.
So there's when there's been unemployment in the tech in the tech world. So we have seen large tech, tech companies less so really,
Silicon Valley Bank, which was, again, another podcast episode could be around this one of the largest holders of that cryptocurrency companies were using to hold their holdings was basically seized, but basically failed, the bank failed. And so there's a lot of talk about that bank being targeted to target the cryptocurrency company. But in any case, let's face it, there's a lot happening in the world right now. And this was definitely something to be wary of and has impacted projects that are tied to those markets.
Yeah. I mean, again, it's interesting to you know, always consider that construction typically has always been like a kind of canary in the mine. It's always been one of these industries. That's very, that's very fickle. It's very sensitive to any kind of economic changes. There's always economic uncertainty. I mean, I think that's one thing that again, just to be prepared for, as business owners have an architectural practices that when is there not? When is there not uncertainty in the economy? This is, you know, this is really these things. This is why it's so important to be prepared to be, you know, to learn the language of business and the mechanisms for running a healthy profitable company, and to be committed to actually mastering them. The shit always happens. It's like we're living in a in a constantly dynamic moving economy and technology is shifting and changing. And, you know, people get spooked, people start to celebrate. It happens in cycles. So we've got to be able to be, you know, agile in our, on our mindset and our skill sets in actually making sure that our businesses are able to weather, all sorts of different storms.
So important and not not to be not to be frozen by fear, because the purpose of this podcast episode isn't to start the tremors of fear. Because what can often happen when we see that maybe things will start going down as we start to get afraid. And what's interesting is if you look at where does that fear anxiety come from? It comes from a lack of our own ability to navigate the situation. So it always comes back to us. It reminds me of my recent jujitsu practices. So I've been getting into jujitsu since November, I'm not very good, but I certainly enjoy it. Go there on a roll around with a bunch of guys for a lot younger than me and some ladies as well. And I get I get beaten a lot. You know, they they tap me out, they choke me, they, you know, make me get near passing out, you know, it's a it's a test of pain and endurance. But one thing that I find with jujitsu, which is relevant to this conversation is, we'll practice a move. And this move seems fantastic. It just seems so I'm like, this is a great move, I'm going to do this. And then I get on the mat with someone to practice the move. But they never, it seems like they don't have the script for how this move is supposed to go. In other words, I'm going on a script of like, okay, I do this, then I do this. And that person does that. And I do that, well, if they don't do what I expect them to do, suddenly, my whole move is off my whole, my whole world collapses, and it doesn't work anymore. Right. So going back to what Ryan's talking about, which is the ability to to be agile, when we're running a practice, I know we've both run practice in the past and with our working clients, it's very easy to want to go back into comfort, this is just a natural part of being a human being, which is, when we're comfortable. We just want to relax, we don't want to do any personal development, we just want to continue the status quo Can't I just continue to wait for the phone to ring and just continue to do things, the way that I'm doing them. But the problem with that is that we lose agility. And this is where, you know, we're not paying attention. And then we do one move, we think that's what's going to happen. But you know, our opponent, or the economy or something opens up a different move, we find ourself in an armbar, where our arms being twisted back in the opposite direction. And then before a note, we're tapping out, and we've gotten ourselves into a world of hurt simply because we weren't agile, and we weren't paying attention, and we were on our feet and we weren't being situational. We were trying to follow a script of something that's worked for us in the past. Yeah,
absolutely. And so another thing we heard that was happening was we had, we've had a number of clients who have had projects exit at quite developed stages. So you know, after schematic design, perhaps, and kind of construction detail CD sets, where the clients have just kind of put a hold on the project altogether, or they've exited, exited the project. And then like that's not going to happen. We've heard of clients actually selling their projects. So again, developers have, you know, decided not to go ahead with actually taking the risk of building something, but they might have got approvals on it, and they change what they've been saying for the last two years. And, you know, now they're not gonna build it, and they're gonna, they're gonna cut their losses and, you know, make a little bit of money by selling a piece of land with that's got, you know, the ability to have 20 units on it or whatever. There's been a lot of concerns over construction costs. I think that's probably the most, you know, we've been hearing this one for the best part of the year and a half now. And it certainly in the, I think, you know, really in the kind of lower middle class demographic adu the world of the ad use, kind of smaller renovation projects. You know, certainly the idea with every number of people who are working, working in AD use, and, you know, it's many times that the project just is financially unfeasible for that particular demographic, unless there's a real kind of pressing family need. In many cases, these projects aren't, you know, the construction costs are becoming prohibitive, or we're seeing projects that have gone through schematic design, and there's been one kind of costing put out and then slightly more detailed drawings come back and the costings are coming back, way off, way off. And this is, again, this is causing projects to either go back to the drawing board or be put on hold or cause more strained relationships. We're seeing an uptick in accounts receivables. Okay, so late payments. This is been this was the thing that really triggered it for me last week was, you know, we have a process here at VOA where we have everybody reports There are outstanding AR, and we like to keep a very close eye on it. You're not allowed to be a client of Business of Architecture, if you are not paying attention to your accounts receivable and what's outstanding, and everybody goes through a process of being really, really on top of that. And so when we start to see that, you know, some people are, you know, the time between sending an invoice and getting paid becomes increased, or when there's been a few months delay in payments, that's a big, that's a big red flag. And, again, you know, we're very aware of how prolific this is as a disease in the architecture industry. It's not something to be ignored. And it's, again, this is another another kind of point where it stresses the importance of being able to have those skillful, but robust conversations with clients, and contractors and whoever it might be ensuring that your contracts are being upheld, and that you aren't getting the money paid to you that you have done the work for. I cannot stress this enough like this, you know, this cannot be ignored. It's really, really grotesquely irresponsible, for any business to be kind of ignoring their outstanding invoices and not taking responsibility for it and just getting into a world of blame. So, in any kind of market slowdown, not unusual to start to see clients taking longer with, with with with paying you. And this might be a result of all sorts of things. So we had a client last week, they were saying that some of the international investors from other countries who are bringing money into the US had gotten spooked, right? They've gotten they've been reading stuff on the press. But what was happening in the US, they put a, they put a hold on investments, and it just put a pause to the entire project. And of course, all there was a kind of knock on effect right down the consultant chain. We've seen a lot of restaurants, we've had a lot of our clients who have been working with restaurants and hospitality. You know that the restaurants have been struggling to get financing. We've heard projects in pipelines, where people were certain that they were going to win, they've all disappeared. Developers taking you know coming with very unreasonable timeframes wanting things done super fast. And then proposals being sent out and then crickets, lot of people or prospective clients were just shopping around. So they're kind of doing their their little Nadler consumer dance of let me talk to this architect, talk to this architect, talk to this architect. Let me get as much information as I I need and then let's compare prices. And we know that it's very rarely is that comparing apples to apples. People having proposals sat on for longer than usual. A, again, you know, this is something that can be dealt with upfront and having things like expiry dates on proposals. And for starters, just running your proposals face to face with with prospective clients and being able to handle objections in a conversation face to face rather than this kind of email negotiation that happens. It says that's a very weak way of working doing anything really. It's just, you know, there's so much space for things to go to go wrong for people not to read for people to misinterpret. I just think like if you're, if you're sending out proposals, and not negotiating them face to face, this is this is this puts your business at such risk. Such such risk. Yeah. Again, kind of construction costs making, making projects very difficult to complete. There's longer development times we've seen developers asking clients for more economic opportunities, developers are having their own refinancing options, problems rather, I must say on the on the other side of this, there's people who are kicking us as well as people who are not experiencing anything,
it's certainly not all doom and gloom. Yeah, and,
you know, just just kind of these are some of the things that we're that we're hearing happening. And unfortunately, a lot of our clients are very well first and being able to handle this.
And you might want to consider as you listen to these, try to see if you're experiencing any of these because each of these has very specific impacts as well. So when we look at these things like projects doling out you not getting a definite Yes, basically project in the pipeline disappearing. All these have an impact on the business and not done me, let's just start emotionally. So Emotionally, it can be very stressful. And it can be very anxious to be able to dealing with this, as you're seeing the pipeline evaporate, as you're starting to worry about a patent pending, especially if you've been through a previous recession, it can take a big mental toll on you, as a founder literally take the joy out of life, to where suddenly becomes all consuming. It's all you can think about, you're not present with your family, instead of being able to be present outside of work. Now it's starting to consume your mind. So we'll talk a bit more about the impacts. But Ryan, were there any other major symptoms that you had seen that our clients had, that our clients are experiencing?
No, I think that really kind of covers it. You know, there's just a lot of a lot of hesitation, a lot of stalling in the pipeline, things that people thought was certain not certain.
Okay, and what, so let's talk about the impacts what how did these things potentially impact a business?
Well, there's the kind of loss of revenue. Yep. And loss of revenue impacts absolutely everything. Worst case, you know, we start having to let people go. We have to start making drastic cutbacks. We have to stop paying ourself. financial goals get postponed. derailed. Yep. Yep. All of this when there's that kind of strain on money, you can guarantee there are a strain in human relations is shortly to follow.
I mean, absolutely. Look, when when financial pressure, that's what we're talking about here is financial pressure and uncertainty being put on you, as a business owner, this can start to put an enormous stress on every single other area of your life. So it's going to put an enormous stress, you may give up exercising, because you feel like now you need to put more into the business, you may forego your own salary, cut your own salary, because you want to keep the business afloat. So this then delays and postpones your own financial goals, you're putting a hold on that perhaps even digging yourself into a hole, because now you're leveraging credit. This is something that every business owner wants to avoid. So the impacts can be mental, they can be emotional, they can be spiritual, they can be physical, they can certainly affect your own morale, as a leader, when when team members start to see this or start to sense this, it can affect their morale. And despite the fact that they're putting on a good face on the outside, like most employees would, at the same time, there may be a voice in the back of their head saying, Hey, do I need to look for another opportunity? Because here's, here's the truth, when the shit hits the fan, it's every man and woman for themself. I mean, that's, that's what's going to happen. You know, when it comes down to brass tacks, people are going to be out for themselves. So it's incumbent upon you, as a business owner to number one, recognize the symptoms? And number two, figure out okay, what are the the strategies that I can implement to deal with these to cope with these things? So what's the possibility? You know, we kind of talked about the the pain, the problems, let's jump over into the possibility of what does it look like when a small practice is well equipped to weather these things to where you're not being reactive, but we're going to, we're going to go into, we're going to jump into the end of the possible, Ryan, anything else we need to jump into, or major impacts that you feel like we overlooked other than depleting our finances and losing,
it's just a loss of happiness and joy in the in the practice, and that kind of team morale kind of just gets zapped, there's just so much mental energy that comes into, you know, carrying that kind of burden. And, you know, we will see we see things, you know, other this is when team members then start making requests, you know, they want to take more time off or they've got anxiety or they need mental health support and, and things like that, and the team begins to kind of dissipate. And well, yeah, is this this kind of like a stress that kind of runs through for, for everybody, not, not to mention kind of, you know, mental well being and physical well being that can be impacted by this
around so we've talked about some of the challenges and some of the the problems that face practices in a recession what let's jump over and let's look at some of the possibilities of what's possible here with the strategies that we'll be talking about today once you start with number one on our list there.
So the recession occurs as an opportunity, not a threat.
I'm sorry, that was mine. I'll let me jump in and I'll take that effort. Okay. So we've talked about the challenges and problems that face architectural practices when running, running into recession. Now, we're going to jump over to the possibilities and say what's possible when you utilize the powerful strategies that we're going to be talking about the Discover on this podcast episode. So number one, number one possibility is, recession occurs for you as an opportunity, not a threat. So it's a great book that we recommend all of our clients read. It's called the three laws of performance. And one of the laws the first law of performance is simply that the results that you get in your life, the actions you take, yep, for those of you watching a video rants, holding up there to the camera, great book is directly correlated to how a situation occurs for us. And let me give you a quick example of what I mean by this. So let's say that it's late at night, and there's a single woman who's walking to her car from the grocery store, she's picked up some late, nice groceries, no one else is around, there's a there's a dim street light. And out of the corner of her eye, she sees someone a dark figure running towards her. Now, normally, let's say that this this situation occurs to her as some Mullah malevolent person, a person with ill intent, potentially about to harm her. And so she rushes over to the car and fumbles for her keys. As this person gets closer, she hears him call out, Excuse me, ma'am, excuse me, excuse me, ma'am, you left her cell phone, right. And it turns out as the store clerk who's given her the cell phone, all of a sudden, all the anxiety and panic disappears. And she's very thankful. So what we can see here is that it was simply the way that she perceived the situation that caused either a rise in her blood pressure and a fight or flight response or a common response to the situation. But it was simply the way she perceived the conversation and what was actually happening. And so one of the dangers that we get into when we're running any business or architectural practice, is that the way we perceive things or in other words, the way things occur to us have a very real impact on how we respond to these things. And if we see a recession as a threat, then we're going to take, you know, it's very likely that we're going to be acting out of fight or flight response. And the terrible and damaging part about this as if you're a high performer is when you go into fight or flight, it takes your reasoning ability offline. Not only that, but it even takes your intuition offline to where you're just reacting and acting out of fear. Instead of a powerful higher level of consciousness, instead of being able to see connections and opportunities and think from a space of creativity, and a space of innovation. Now you're trapped in the monkey brain, which is, you know, everyone abandoned ship, you know, Cast all the cast, all the ballast overboard pirates are here, you know, burn the boats, and you can make unwise decisions that end up really harming the practice in the long run. So, possibility number one, just to review is, instead of seeming like a threat, you actually look forward to as strange as it may sound, you look forward to recession, because you realize that it can be one of your greatest market opportunities, which is the ability to thrive during a recession.
Number two. And I think that what you've just said, there's really very pertinent of being able to actually see the recession as something that's giving you opportunities. And that there's, you know, when there is a recession, it means that there's problems, when there are problems for clientele, then that means that there are solutions. And if you can be the one who's providing the solutions, then there's often a fee that you can charge for them. But it means seeing opportunity where there wasn't any before. And that really kind of leans into the second possibility is that you've actually got sound strategies to handle the inevitable ups and downs of the economy. And I think these are a really twofold one is what you've just said, there is the ability to be able to see opportunities where before other practices are actually seeing desperation and scarcity and doom and gloom. And the the other one is that you've got the skill sets, that you've got pipeline building skills, that you've got the you're confident in your ability to be able to market and sell, that you know where your clients are, and that you've been, you know, diligently building pipeline, and you've been diligently creating a network, you understand what your market landscape is, you know, where there is potential latent projects, you've been doing all of these things before the before a recession. So, you're confident that they work and that you know, that in a recession, then you can apply some of these strategies, more, you can increase them, you can accelerate them or you can, any other way that you can figure out to amplify them. Fantastic. You can you can do that. I think a lot of practices really underestimate the you know, the power of constantly developing pipeline and honing, marketing and certainly conversational sales skills. All of that is just left To, to chance, and actually having sound strategies to be able to deal with the inevitable, is very, very powerful. And again, this is kind of your when the economy is up. And doing well, this is the time to train and invest in ourselves isn't that this is the best time to, to kind of really, you know, learn the craft of winning work, because there's less, there's less risk to it, it's very hard to learn these skills when you're hitting a trough. And now you haven't done any marketing and selling for the last year and a half or whatever it ever it was. And now you're suddenly trying to pull out all the all the stops, doesn't help. Exactly, yeah.
Now, one thing that might be occurring for our listeners right now, as they listen to this, especially if you're running a small firm is, well, Enoch, and Ryan, that sounds great. But I don't have the time to build a pipeline, I don't have the time to nurture my network, I'm already stretched thin as it is. And those things often get pushed off to the end, because let's face it, they can be time intensive. Well, then the question then then then comes up, which is like, this is exactly like this is a symptom of not charging enough for your architectural fees. Right. So the reason why most small practices don't have most more practice, leaders don't have the time to do more networking to do more business development to make sure they're building their pipeline, is because they just they they're, they're not charging enough to be able to allow that in the practice. Well, then the next question comes up is, well, I can't charge more, because if I charge more, I'll start losing projects. And then we would ask, Well, what strategies do you have in place, and skill sets do you have to be able to charge premium fees for your work, even when other architects are offering maybe a similar or slightly less of a service, or maybe the same service for a lot less than you're charging. And what we found is that most small practice owners don't have any strategies around this. And so as such, they become victims of the economy, instead of being able to be in a powerful position. Now, I do want to recommend, so in terms of sound strategies to handle that, we know that the economy is going to go up and down, it's inevitable, there's going to be these business cycles. And there's opportunity to innovate. Ryan's going to talk a little bit about this. But I did want to point our listeners to an episode that we recorded with Scott Lowe of studio 5g 5g Studio collaborative, which is Business of Architecture episodes, 227 and 228. What I loved about this interview with Scott Lowe, they've been in the architect 50, which is a listing and ranking of architectural successful practices put out by architect magazine, which is the official publication of the AI. But they, they have a presence overseas in Asia. And so I think this is a great example of, you know, practice strategies to diversify, look at other market sectors, how can you diversify what you're doing, to be able to put yourself in a place of success when other firms and local work is drying up? Now, possibility number three, is you're confident in your skills and abilities to thrive in any market condition. So when we talk about building a pipeline, bringing in work, making sure that you have robust increase for your practice is very similar. Oftentimes, what we don't realize is this is a skill, like any sport that you might acquire. So recently, I picked up jujitsu, and believe me, when I walked on the jujitsu mat, I just got destroyed by even the most elementary and the most novice white belt. And the key here is that oftentimes, we can forget that business development, building a network, being able to turn those relationships into work. It's not just information, it's not like, we just need to know what to do. And then we can go out and turn it on. So this is the danger that small practice owners that we get into when we're running a small practice is we may have read a couple books, we know intellectually, well, I need to talk to people, I need to call people, I need to build these relationships. But we've never actually taken the steps to practice it. And so what ends up happening, it's like, I have the I've watched a lot of YouTube videos on jujitsu, but then I get thrust into a tournament, and I just get destroyed. Because I don't have the actual skill set. There's a very, it's important that we recognize there's a difference between information and the actual embedment and the the unconscious competence of that information. So when you're confident in your skills and your abilities to thrive in any market condition, this brings you an incredible peace of mind. The possibility here is that you can capture market share, you're thriving, while many other small practices around you are an emergency road red flag.
Absolutely. Now when you've got that peace of mind, this is the thing that allows you to the next possibility. This is the thing that allows you to be innovative. This is the thing that allows you to put creative energies into your architectural designs and your work. And it also allows you to be innovative with ideas for winning more work, or innovation in terms of You know, going back to what we talked about number two, with these with developing strategies for being able to serve your clients. I'm reminded of a podcast I did with Lindsey CO, and Mark DeSantis of their practice, the hospitality focused practice in Texas. And during COVID, you know, they, they only do hospitality work, most practices, their recession proof strategy is diversification. Diversification is actually, it's not without its problems in terms of a strategy, because it means that you're kind of lessening your month in one field, you're spreading it across. It's less, you can't be as operationally efficient inside of the business when you're dealing with lots of different project typologies. But they were like, No, that went does diversification. That's not for us. We're going to innovate. And we're going to innovate. We've serving the hospitality industry, whilst they're going through their hardest point ever. Whilst they have lost all of their clients, you know, what's happening, all of the other architects have buggered off. They have said, your industry is dying, we're gonna go and focus somewhere else, which left them a opportunity to be able to double down and innovate and come up with new services to help prepare those clients for what would happen with the inevitable end of the COVID kind of lockdowns. And so during that period, they they invented new services, they started networking, they started really getting deep into the world of that hospital, their hospitality clients, and they deepen relationships. And they were able to pick up new clients that had been abandoned by their other architects, if you like who had left them for dead, I'm being a bit extreme here, but you understand what what, you know, the kind of image that has been painted. And again, they were, they were confident in their abilities to, to market and to sell, and confident in their abilities to better serve that kind of that kind of client. So having peace of mind, we cannot underestimate what an enormous resource that is in our ability to perpetuate what it is that we want.
And that is such an inspiring example, Ryan, of what I would call leadership. So leading your clients, this is an opportunity that I mean, as Ron and I discussed this here, right now we can look at that with admiration, respect, acknowledgement. And certainly as as you as the listener, listen to this as well, how incredible that noon zo was able to do this, and his son, their partners in the business, be able to take that proactive approach. And here's the thing, clients were looking for leadership, meaning when when this proverbial shit is hitting the fan, when everyone else is freaking out, when there's the sky is falling, everyone is looking for someone that has certainty or certitude. And you as a firm owner, you can demonstrate this, it's a beautiful opportunity to step into leadership, and to say, hey, look, while the other firms are freaking out, and they're just reacting to everything. We're confident we know this is going to end. And we want to align ourselves with other businesses who are believing that again, this is an opportunity to prepare ourselves for the inevitable end of COVID. What a beautiful example. So that goes along with our first principle here, when we talk about these recession strategies. Number one is the economy always operates in cycles. So if we're not taking proactive steps right now, to gain the skills, the attributes, the disciplines, and the tool sets to be able to thrive in the face of recession, then we're only deluding ourselves. We're like the proverbial ostrich that has its head buried in the sand. And trust me, I get it. It's it's human and natural to do this. I recently sent out a little email to the list and also social media posts. Given an example about how about six months ago, I did a CT scan, and they found two spots in my lungs. Now, probably probably just totally benign, no problem. But the doctor did recommend that I go in for a follow up exam to see if there was more spots or see if the spots had grown. And what's interesting is, you would think that I would have been on that immediately, like, oh, shoot, if I have lung cancer, I went into sooner rather than later. But actually, my subconscious mind, I'll blame it on that sabotage me. And I was like, I didn't want to go in because if I did have lung cancer, as crazy as this sounds, when I say it out loud, I look back and this is what happened, right? Because it's six months down the road. And I was there was a part of me that was worried about getting the bad news. So I was just thinking, ignorance is bliss. Ignorance is bliss. Now, since that time, I have the CD sitting on my desk over here with the images from that scan, and within a week or two, I'm going to be scheduled in for the follow up CT scan, and I'm sure everything will be just fine. But it's not too different from when the times are good in architectural practice. And we know the fact we know that there's going to be cycles in the economy, and yet we're not taking the time had to build a house now, before we actually need it dig our well now. And now the pro probably the best, the best time to plant a tree is 20 years ago, the second best time is right now.
Absolutely. And the next principle we're going to look at is poor salespeople and poor marketers, these are the guys that get spooked. These are the guys that get frightened in the economy. These are the ones that get paralyzed with fear and ran for the hills, they run for the hills, and they stopped selling, they stopped doing business development. And in many cases, they weren't even doing business development in the in the first place. So it doesn't take much for them to stop. Or they start in a really frantic manner. Having never done it having got no skill sets based on it. And they do it with an attitude of desperation, of neediness of, of kind of resignation, and they're already predestined to failure. Okay, the skilled ones, they double down on what they've already been doing. Right, they know which of these strategies work really, really well. They know their client they've been they've been marketing and selling consistently, through the whole all the good times. So very much echoing what you're saying that and they're very clear on the pains and the problems of their clientele, they've, they're obsessed with their clients, they understand the financial cycles of their clients, they understand the pain problems of their clients, they understand what the clients are trying to accomplish. And when I say clients, I'm really focusing on the people with the money who are going to give you money to do a service for them, not just the stakeholders, which architects are very good at, considering. And that's very important. But ultimately, it's the clients with the money that we want to be able to understand and the better we can understand them as well, the better the better projects that get delivered and built. And the better that we can serve all sorts of other agendas that are important to us. So there's the skilled marketers, and salespeople, they double down when there is a dip, and they know where to double down. And they're ready.
Yep, absolutely. Principle number three here is that poorly run businesses fail to communicate with teams, clients, and consultants and other stakeholders. So it's not uncommon, I can see this, I can see this. In my past life, when I was running an architectural practice as an inexperienced leader, someone who just hung up my shingle was hoping for the best, you know, when products got delayed, when things would happen at planning, instead of being proactive and communicating with clients and letting them know immediately that maybe the timeline was changing, or what was up, I was just like, oh, maybe I just won't tell them because it's going to be an uncomfortable conversation. And maybe they won't notice, right. And so there's this this natural part, at least that I found in myself, I just happens to have the conversation with my wife, sometimes I may not want to deliver bad news. So these, this kind of thing is very common when business owners are running their business in an unconscious state or they're not aware of their own leadership. And what ends up happening is they fail to communicate, for whatever reason, out of fear out of negligence out of just not being aware out of being stuck in the weeds of the business. So they don't give other people a heads up about what's actually happening. And what we found time and time again, is clients are understanding. Consultants are understanding team members are understanding if you know how to frame it properly. And if you're just upfront about what's happening, everyone then can operate. From a sense of at least they know what's happening. It's sort of like, you know, when you're trapped in a room with the Hornet, you want to see where the Hornets at the worst Hornets, the one you can't see because then you're nervous all the time. Whereas if you see it over there on the wall, your goods like my wife and I were at at this wonderful Thai restaurant the other day on our on our weekly date night. And as we're sitting there enjoying some, some Fah. And a little bit of sushi, they had sushi too, which was interesting. All of a sudden, a bee flies over my shoulder inside the restaurant and like kind of lands on the window right next to us. And my wife is like freaking out. Oh my goodness, there's a bee. And when we could see it, no problem. There's the bee right? But all sudden, she couldn't see the B and then tear, the tear started a set and what's going to happen? Well, fortunately, the restaurant to draw the story to close restaurant order came over and quickly dispatched to the B. But the moral the story is you want to be able to see where the threat is, in your business be open with it to communicate that with team members in a productive way, in a way that's going to build them up and not put them into fear but in a way that's going to empower them and your team members.
Absolutely. I think you know, the the businesses that do communicate with their clients like the example with Nunzio and and his son, you know, they found opportunities, they found opportunities to serve the clients in a new way. And so much of the stress that comes with it You know, any kind of economic contraction? Is the fear of oh my god, what are the clients gonna think? What are the people going to think thinking that you're the only business that's going through a difficult time. And then if you do find other businesses that are going through a difficult time, then you just complain, and you kind of console each other in misery, and it doesn't actually do anything. Or you feel bad about what's happening financially. So you hide it from the team, like you're, you're saying, and that's only going to make things worse, or you don't have the ability, we don't have the confidence to know how to be transparent with your team about what's happening financially. So again, in business that's that there's poorly lead, of course, they're gonna be poor, poor in their communication, because that will be in that will be prolific all the way through.
So Ryan, let's jump over, we've covered we've covered the problems that are facing firms in a recession, we took a look at the possibilities what's possible when you use the strategies we're going to go over. And then we jumped into three very important principles. Let's jump over now to our strategy. So we have a list here, of how many do we have, we have 10 specific strategies. Actually, when you count, we have a couple of bonus strategies in here as well. But we're going to give you the strategies. What to look at when you see that a recession is looming when cash flow starts to dip when you're in a cash flow crunch, which ultimately, that's what we're talking about here. Because, you know, how does how does a recession affect the business? Well, an architectural practice. At the end of the day, it comes down to the cashflow, it just comes down to money, it comes down to finance, it may come down to the kind of projects you take on, but we can all suffer through maybe picking up a couple of projects that may not be the most exciting and thrilling. But when the when the funds dry up. This is when we're entering into very stormy waters.
Yeah, absolutely. So this is really the cashflow shortage. So the first one very obvious, sell more clothes, more new deals, hustle, beat those bushes, hit the phone, set up lunches, breakfast meetings. Again, like we were saying earlier, those who have been doing the hard work, and the diligent work of building pipeline, prospecting, who have been, you know, they've been earmarking time every single week to be making phone calls, phone calls, developing those relationships, then now all they got to do is double down on the things that they've already proven that work they've done, they've gone through the hard yards in the good times of establishing which of their strategies are the most effective, now they can double down on them, now is not the time to be trying to figure out how to market and sell.
It's yeah, it's hard to do that. And we do have a podcast episode with MK studio, one of the practices that we've been working with for a while on the smart practice program. And one of the things that we teach in there, as we call it, the two day protocol. And the two day protocol is simply reaching out to contacts twice a day, through phone, text, email, and just keeping that network alive. Now it's one thing to know that we need to build a network and meet with people to be able to build a pipeline like no surprise there, none of you listening to this are probably falling over and you're saying, Oh, this is the stroke of genius. These two brilliant principles here at Business of Architecture have just enlightened me as to the way to win work. Now this is we have under no illusions that this has happened, however, but it's it's an entirely different thing to be able to take those relationships and turn that into work. Because you need to know how to ask for the work you need to know in the what the right timing to ask for the work, you need to know how to turn those relationships into the work. And that's where the skill comes into it. So that's strategy number one, right, which is, get out there, sell more close more deals, focus on this development, focus on bringing in the work, like bring out your inner Hustler, like the inner hustler has got to come out. It's like the inner hunters going to go out into the forest and you got to bring home some game for the team.
Yeah, that is there should be an excitement around this one and a little bit of the fear of God as well.
Yes, yes, exactly. Yes.
So number two is on I'm a, I like this one, because we've seen it with our own clients work really, really effectively can be a lot of fun can be very, very easy, which is actually which is to start to collect payment for services up front. So the few ways that you can do this. One could be simply that the new clients that you're taking on that you start taking bigger amounts of money upfront, okay, you start taking large deposits, you start taking 50% deposits, you start taking 100% Okay, so those of you who are doing small turnaround bits of bits of work that lasts maybe a month or two, then they should be paid up front 100% Before you even start work on them. Just keep this up. Easy. No brainer. Okay, or simply to start into new work comes in, you just take a larger chunk to start with the second And part of this is actually incentivizing clients for upfront payments. So projects that you've already got on the books and have got an has been committed to, then it would be wise to consider how you might incentivize those clients to pay that money that they've already committed to paying you today, as opposed to over the next 10 months. Now, this is not going to be it's not going to be a fit for every single client that you have, obviously. But one incentivization that you could use is simply to reduce the total amount that they're going to pay for your services by five or 10%. And say, basically, it's like a sale, you know, if you pay, if you pay me tomorrow, the the remaining of the fee that we've committed to, will give it to you to five, 10% Less, okay, this is where discounting becomes very, very useful. And it's very effective, we've seen plenty of strategies set plenty of clients who have used this, it's bought them two, three months worth of worth of time, you know, they had $100,000 worth of fees on a project. And they said, pay me that $100,000 In the next seven days, well, you know, we're not 10% off of it goes down to 90 grand, whatever the client was in a position to be able to do that. Fantastic buys the business three months, those three months mean that there's three months of really good business development, activities, great problem of problem diverted.
Exactly, and to be to be very, very clear. We are, we're only suggesting discounting at a at last as a last as a very, very last resort. Right? Because too often architects, this is the first thing you may go to, when you're looking to, to convince persuade to get some Kinect sensor from your clients is to slash your fees, we do not recommend this. However, in the case of your bank account being drawn down, here's here's why this is important. And why what Ryan's saying is so powerful. Not necessarily be we're not so worried about the discount of the money. But an entrepreneur or a business owner or an architect who has $100,000 in their in their operating expense account, versus one that has $10,000 in their operating expense account. Let's say that their breakeven every month is $50,000. Right? So let's say that you have 100,000 versus 10,000. So you have two months of operating expenses versus a fifth 20%, this person is going to operate very, very differently. The person who's staring at a bank account balance of $10,000, not even enough to make payroll next week, is going to be operating out of scarcity, they're going to make rash decisions, they're not going to be operating out of their highest level of thinking, versus someone that has that $100,000, what they've done is they've bought themselves some peace of mind. So they have the ability to regroup, they have the ability to approach the situation from a powerful state of mind, as opposed to a place of scarcity. And that's, that's the importance of this. So the money you get is not necessarily most important thing, because let's face it, you could cover a cash shortfall with financing or other opportunities like that. We'll talk about that later. But the actual mental switch that goes off in your mind, when you're able to have that money in the bank account is is worth much more than the money itself.
i Yeah. And I also think that it's not really a discount, because this is a trade. Because you've lowered the well said you've actually lowered the fee. And I know we use the word discount, but you've actually lowered the fee in exchange for something else, which
is it's a concert. Yeah, yeah, it's a trade.
You've brought you pay me sooner? Yes, you make a saving. So yeah, you know, anything like that. It doesn't it, you know, you don't even need to reduce the fees, you could offer something else.
Exactly. And bonus, an extra service, you know, call me any time, we're going to put a team member on, you know, on on the project, you know, at your disposal. For seven,
I've got a house, I've got a I've got a spare room you can use anytime you visit, whatever it is,
that's right, we have your throne, my vacation home two weeks a year for you and your wife to go stay at. And we're assuming that as a small practice owner, you must have a vacation home. So
but the point being that you can be creative here with how you and how you incentivize your clients to to bring the payment structure forward. And you will be surprised at you know, how this works, and how it actually is advantageous to many clients as well. You know, certainly if we're coming towards the end of the tax year, there is often a lot of clients who want to make an investment in their business and rather not pay it as tax. They can pay for you know, the remaining the remainder of your services, which is going to go on for the next few months. Makes sense for them to pay you all now.
And the other thing here to be aware of that just came to mind, Ryan is that they need to be aware or that your clients will be trying to do the inverse to you. And so this goes into, I'm going to jump ahead get ahead of ourselves a little bit. Number seven here that we're going to talk about is negotiating or delaying payments to vendors. So typically what you'll see and those of you who've been through recession before, you know what happens with larger institutional clients or clients that are there battening down the hatches, oftentimes one of the first things they do is they're like, Okay, well, let's slow down all of our payments to vendors. So you need to be aware that this is another another threat out there that you may face, which is clients may sit on your invoice for a month or two longer. And so maybe part of negotiation, just getting them to pay on time. So you need to be aware of that as well. Alright, let's jump into strategies number three, and four. Strategy number three is to collect on accounts receivable. So all that outstanding money, the invoices that you've let sit, that you haven't followed up on, because you're too busy doing other things, make sure you you hustle that you know, if you're not a hustler, or you don't like badgering clients, hire someone to do that, that has that kind of personality, right? Every practice that has a low amounts of accounts receivable, they have someone on the team who's not afraid to have a direct conversation to call someone up and say, Hey, where's our money? You know, this this? Yes, I like you. We're friends. And this is business. And you know, if I'm your friend, why are you not paying me? In other words, right, turn it back on the client. So that's strategy number three. Strategy number four is to accelerate your invoicing cycle. So issue invoices twice per month. Now, preferably, you're getting painted advance for your work. So to clarify what Ryan said previously, when we talk about getting paid in advance, we're not just talking about collecting a retainer, we're talking about literally, you get paid before the month begins. So the work that you're gonna be doing that month, you have the cash in the bank, at the you know, before the month actually starts. Now, for some clients, that won't be possible, they're not going to be flexible in their payment terms, that's fine. And you may have agreed to different payment terms, and you're not in the position to renegotiate that, then you can accelerate the invoicing cycle, issue the invoices twice per month. And this can allow you to free up that cash flow and make sure that you're maybe avoiding some of the dips, because what typically happens with cash flow and a practice is that because the payroll happens twice a month, and yet, your invoices maybe come in in a lump sum at a particular time, you may have a particular day in the month where it drops down very, very low. And so as a preventative strategy, if you're bringing that money twice per month, you can soften that and make sure that you don't go into the negative. So that's our strategy number four
interesting with that one, when sometimes I hear people who are very hesitant to Bill upfront for work, and they really want to have finished the work before they bill. You know, and sometimes we use the thought experiment of well imagine, you know, what a great scenario would be if you listen, you say that you got your fees bang on, right for first, first of all, and the client paid you 100% of that fee from the beginning. Now, why would that be a problem? Okay, okay. Some people might be worried that, you know, they might spend all the money too quickly. All right, if that's a problem, there's methods and strategies to drip feed yourself that that money, but also it's businesses that don't know what to do with money. When they get nervous, as businesses that are uncomfortable having money that don't like to have money in quicker? Yes, yes. And I would really point the question back the finger back of being like, Are you a good steward of money. Because if you're a good steward of money, and you know where money needs to be deployed for, to help improve your business to grow, to make sure that you retain a talent to make sure that you keep your own mental health and your best quality, then that is going to massively benefit your clients. Okay? If you're not a good steward of money, then you're going to be worried about having money too quick. So, number five, reduce operating expenses. Alright, so start turning your machine into a lean creature. First thing that you'd suggest for you to get rid of cut any fringe expenses. So this is lunches, this is work drinks, this is entertainment. This is the Friday night entertain, you know, kind of band that plays in the office, or whatever kinds of things that you might be indulging in. Probably could do without that for a bit. All right. I know. I've seen businesses in the past and they, you know, they've gone into difficult cashflow problems, and they insist on keeping these things with the argument that they're keeping up team morale. And again, I would sort of, I would kind of point to that your communication with people is what generates morale, not free drinks, okay. And if you're leaning into trying to buy people's favor, then that's a kind of deeper issue, but cut fringe expenses, things that are unnecessary, free coffee or that sort of stuff, get rid of it. Reduce employee hours and salaries. So we start to furlough people. Again, as a small practice, I think just having a lot of people having a good base of people who are contract staff anyway is a very sound strategy. So that you can only be paying people for when they're needed. And this helps your business kind of contract and expand with with your work with your work flow. But if you've got people who are permanently employed view, then negotiations can begin to for them to protect and maintain them as team members, and actually start reducing their you know, how many days they're working per week, reduce their salaries, there can be people who can put themselves voluntarily up for that. And you can negotiate all of these things exactly like what happened during COVID. Okay, and again, it can be very beneficial to both parties involved. Third is actually letting go of people. So this is never an easy thing to do. However, you may see that this is the opportunity to let go of underperforming team members. Perhaps there are there are kind of contract staff members and these people just couldn't put a pause on those contracts altogether. Certainly, if you've got people who have been toxic or toxic to the culture, or you've deemed not to be a fit, and you've been in your own head about whether I should get rid of them, or I shouldn't, now's a great time to take the action and call back. Okay, pruned, do some pruning in the business, get the machine, very lean. And then finally, business development, marketing, improving the business consultants that you might be working with helping you build and grow the business, your communications experts that you're working with, these should be the last expenses that you cut. And this is, again, something that we see happens all the time. The first thing that gets cut is say something like marketing. When there's a bit of a recession or an economic downturn, you need to be marketing more, when there is the worst mistakes ever. And then of course, what happens is you cut back all your marketing, you decide to put a very junior person on to your marketing activities. Goodbye pipeline.
That's right. It's like I'm starving someone to cut off the best source of food that I have.
Yeah, it's it's like it's like how to how to compound? The How to compound the, the the, the offense, the problem? Yeah, yep.
So number six, wrangle for
number six delay capital purchases. So you know, big investments that you were looking at making in the business, like, perhaps a whole lot of new computers, or desks, or software upgrades. Perhaps you're looking at doing a lot of building work to the office, or buying the new office, or you're buying vehicles, these sorts of big expenditures, these could just be put on pause.
Yes, yes, brilliant, brilliant. All right. So numbers, strategies, number seven, and eight. And these are in no particular order. As a matter of fact, under number five, we have various operating expenses, laying off staff marketing, those, those should be some of the last things to do. So don't don't take this necessarily as like, as the right is going to be very situational, how you implement these strategies. Alright, so number seven is to negotiate or delay payments to vendors. So this is what we talked about referenced earlier, which is, you know, you have some chats with your consultants have some chats with your vendors, are there any bills that you can delay, can you can you, you know, put off paying them for a month to be able to get some extra cash into the business. Number eight, which is a great one is get financing or credit. But make sure that you're not running the business irresponsibly off of financing or credit, for instance, getting financing or credit to keep staff on board when the business can't afford it. Every successful entrepreneur that I know, when the business isn't performing, they they make sure they get paid as the business owner, if the business can't support the staff, the staff get laid off. That's just that's just the A plus B of of running a business, right? So this is why it's so incumbent to make sure that you're you have the skill to do business development. So you never get in the position of having to laugh a valued team member right. Now, not to say that sometimes you might not want to invest in staff by keeping them on even if you're having to supplement the business a little bit. All right. So that's number six, number six delay capital principle this Ryan said seven negotiate or delay payments to vendors. Number eight, get financing on credit. And then Ryan wants to wrap this up with numbers nine and 10.
Just before I do that, number seven, then negotiate delay payments. One thing I would say about that is that you get clear agreements with vendors on What? Like, like you said, you jump on your phone, don't do this with wimpy emails really getting fed up with hiding, disappearing? Yeah, people negotiating all sorts of stuff and emails, don't be surprised that terrible replies back in your face just let's just well that's that's
nothing to write about this is like there's there's there's karma, right? So if if you're doing this to other people, I mean how can you expect when the universe people do it back to you they just go radio silent, they're not paying you they're avoiding your phone calls, you need to stand for your level of integrity. So yes, thanks for pointing that out.
Absolutely. And you know, and get get clear agreements with your vendors, dates, numbers, you know, here's what I'm going to do, here's what I'm going to suggest, if you say I can't pay you, I don't know when I'm going to better pay you next, okay, that doesn't really work. There needs to be some, at least some structure of communication. So you say I don't know, I'm gonna better pay you. But I am going to be I'm going to report back to you, we're gonna have another conversation in two days time. And in two days time, I'm gonna be able to tell you when I'm when I can confirm when you're received your payment. So I'll give you a status update. Exactly. But you gotta get something. And if you go nebulous with any of this, then it's it's lacks integrity. So the final two is to sell assets. So maybe, you know, there's computers that you're not using. We were joking, Aston
Martin, St. Martin, combine the fine, the fine, collectible art piece. In the office.
I put this question to some group of architects the other day of you know, what assets? Could you sell on somebody said pets and children? Honestly, in jest, obviously in jest, yes, yes. But things like Vehicles, furniture. I mean, I see so many architects with big, enormous offices that are empty, just kind of waiting for them to be filled, just flipping rent out some of the office space. If you've got it, like what was a no brainer, easy. Computers, you could even think about loaning team members out to other practices, actually excellent. Actually loaning a team member out and having somebody else pay you to be able to use your team member. If you haven't got enough work, I think that can work very well. And then finally, number 10. Actually just, you know, being like an entrepreneur, an entrepreneur and raising money from outside investment. Okay, so actually, there could be contractors or developers who want to have a little piece of your business, who you've been working with, for a long period of time, there's been a really good sort of synergy there, perhaps you've been talking about it kind of collaborating more deeply. All right, well, now could be a time where you actually raise some money for them to invest into your business for them to take a little bit of, perhaps they take a bit of steak, or perhaps there's a different arrangement that you have, where you might give them a kind of share of profits later on. Whatever it is, you can get super creative with this. But this would be a very good way of, you know, getting more capital in the business, there might be consultants that you've worked with in the past, who might be interested in investing into your business, perhaps you've worked with business consultants who know your business very intimately. And they might be interested in, you know, investing and taking a stake of your company, they might even give you an exchange more strategies for business development and for business growth. And it could be a win win scenario for both of you. Or it could be past clients, who, again, who know have a very good relationship with you. They've been interested in the in the design world, they understand business, perhaps they've got a big network of their own of high net worth individuals, let's say. And they know that they could market your business to an existing network and existing relationships that they have. And it would make sense for them to be able to invest some capital and in and get some ownership in your business or again, whatever arrangement you you have of them, they'll they'll be interested, they'd be motivated to introduce you to these team members to these to their network. Great.
Yeah, I had just on this, I had a personal friend of mine recently, a couple months ago, reached out to me, he's a dentist, he's been investing heavily in his practice. He's making investments and very expensive equipment. And he was just suffering a cashflow shortage like he was trying to refinance some of his debt. And so he reached out to me said, Hey, Ina, can I can I can you will you loaned me $100,000 To be able to refinance some of my debt, you know, and he said, I'm gonna pay it back at a very, very reasonable interest rate. I'll give you 12% I can't remember the exact number. But I wasn't in a position to lend that money to him at the time, but I did appreciate the fact that he reached out because he's my friend. It's favorable terms to me, and certainly if I would have had that money to be able to give to him and I did consider I consider maybe liquidating some investments to help them out. But this is not so it's not completely outside of reason to be able to do this with someone now gonna just quickly there you have it, we have our 10 specific strategies to help you out in a recession. One strategy we haven't mentioned, which is essential is make sure you're filling out your 13 week cash flow projection. So 13 weeks is a quarter, it's three months. And make sure you're having this filled out by your bookkeeper or an office manager or yourself every single week, even when times are good. All right, so if you go to business of architecture.com, forward slash 13, that's the number 13, one three week, so no spaces in that you can get access to a spreadsheet with instructions and it also has the list of these 10 different strategies that we talked about. So it's business of architecture.com forward slash 13 week. Now to review the strategies are these some more close more deals number one, number two, collect payment for services up front number three, collect on accounts receivable. Number four, accelerate the invoicing cycle. Number five, reduce operating expenses. Number six delay capital purchases, number seven, negotiate or delay payments to vendors. Number eight, get financing or credit number nine sell assets number 10. raise money for investors. Now certainly there are more strategies than these. And if you want to make sure you are prepared for a recession or market downturn to thrive, of course, come enroll in the smart practice program and become one of more than 200 architecture firm owners that are running their practice with a system that allows them to be prepared, while other firm owners are panicking. And that's a wrap. Oh yeah, one more thing. If you haven't already, head on over to iTunes and leave a review. We'd love to read your name out here on the show. This episode is sponsored by Smart practice. The world's leading step by step business training program that's helped more than 103 architecture firm owners structure their existing practice. So the complexity of business doesn't get in the way of their architecture. Because you see, it's not your architecture design skills that's holding you back. It's the complexity of running a business, managing projects and people dealing with clients, contractors and money. So if you're ready to simplify the running of your practice, go to business of architecture.com forward slash smart to discover the proven simple and easy to implement smart practice method for running a practice that doesn't get in the way of doing exceptional architecture. The views expressed on the show by my guests do not represent those of the hosts and I make no representation promise guarantee pledge warranty, contract, bond or commitment except to help you conquer the world. QRP Diem
